If you’ve ever thought about diving into the stock market but felt overwhelmed by all the options, let’s make this simple: Warren Buffett, the legendary investor himself, swears by one particular investment—the S&P 500 index fund. And for good reason.
Why Index Funds Are a Smart Bet
Investing in the stock market can feel risky, but an index fund offers a way to mitigate that uncertainty. Essentially, an index fund bundles together stocks from multiple companies into one neat package. This diversification helps reduce risk, making it a safer bet for long-term investors.
The S&P 500 index fund, in particular, tracks the performance of 500 of the largest companies in the U.S. Think of it as a snapshot of the American economy, spanning sectors like tech, finance, and consumer goods.
As Katie Brockman notes, “In general, the more variety you have within your portfolio, the more protected you are against market volatility. While S&P 500 index funds will still face short-term ups and downs, they’re far more likely to recover and go on to see positive long-term returns.”
A Flawless Track Record
Here’s where things get interesting. Analysts at Crestmont Research studied the S&P 500’s performance over every 20-year period in its history. The result? Every single one ended in positive returns. Yes, every. Single. One.
So, if you’d invested in an S&P 500 index fund and simply let it sit for 20 years, you would have made money. That’s the kind of consistency that’s hard to ignore.
Warren Buffett’s Stamp of Approval
Buffett isn’t just a fan of the S&P 500 index fund—he’s its biggest advocate. Through his conglomerate, Berkshire Hathaway, he owns both the Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF Trust (SPY).
In fact, he famously bet $1 million that an S&P 500 index fund would outperform actively managed funds over 10 years starting in 2008. Spoiler alert: He won.
His investment returned 125.8% during that period, while the five hedge funds he bet against averaged a meager 36%. As Buffett summarized: “A final lesson from our bet: Stick with big, ‘easy’ decisions and eschew activity.”
Translation? Don’t overcomplicate things. Sometimes, the smartest move is to invest in a straightforward index fund and let time do the work.
How to Build a $1 Million Portfolio
Now, let’s talk numbers. Historically, the S&P 500 has delivered an average annual return of around 7%. Here’s how much you’d need to invest monthly to hit the $1 million mark, depending on your timeline:
These calculations assume a steady 7% annual return, but as Brockman points out, the S&P 500 has often exceeded this average. In 13 of the past 20 years, its returns were higher, with five years delivering over 20%.
Why Timing Is Everything
While the stock market can be unpredictable, one thing is clear: the sooner you start, the better. By investing consistently and staying patient, even modest contributions can grow into a substantial nest egg over time.
As Buffett’s experience proves, you don’t need to chase the latest trends or make perfectly timed moves to succeed. Sometimes, the best strategy is the simplest one—investing in a reliable index fund and letting it grow.
Don’t Wait—Start Today
Feeling like you’ve missed out on opportunities? Think again. The S&P 500’s track record shows there’s always a chance to build wealth, no matter when you start.
So, what are you waiting for? Take a page from Warren Buffett’s playbook: invest in an S&P 500 index fund, stick with it, and watch your money grow.
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